US Supreme Court Ruling on Exhaustion of Patent Rights is Welcome News for Canadian Exporters of Refurbished Goods

June 02, 2017

Written by Dominique T. Hussey, L.E. Trent Horne and Jeilah Y. Chan

In the United States, once a patentee has sold its product—whether domestically or internationally—its patent rights in that product are exhausted; the patentee can no longer use patent law to control refurbishing or resale of those products in the marketplace. Even with contractual limitations on resale or importation, the exhaustion of patent rights means that a patentee cannot sue the purchaser or subsequent user for infringement. The Impression Products decision provides comfort to Canadian exporters that the sale of products in the United States for re-use or resale will not give raise to a claim for patent infringement. There are, however, limitations to this principle in Canada. While purchasers of patented goods can resell and repair them, the goods themselves cannot be reproduced. This particularly applies to self-replicating technologies like seeds.

Case

IP Type

Patents

Summary

Lexmark International designs, manufactures and sells laser printers and toner cartridges to consumers in the United States and abroad. Lexmark owns patents covering components of these cartridges. The sale of replacement cartridges is a significant part of Lexmark's business.

Lexmark sells its cartridges to consumers in two ways: at full price with no restrictions on subsequent use or at a discounted price through Lexmark's "Return Program" (a program that requires consumers to contractually agree to use the cartridge only once and refrain from transferring the cartridge to anyone but Lexmark).

Impression Products is a remanufacturer. It acquires empty Lexmark toner cartridges from purchasers in the United States and overseas, refills them with toner, and resells them in the United States at a lower price than the new ones offered by Lexmark.

Lexmark sued Impression Products for patent infringement on cartridges acquired through domestic and foreign sales. Ultimately, the issue before the United States Supreme Court was whether, by selling cartridges domestically and abroad, Lexmark had exhausted its patent rights leaving Impression Products free to refurbish and resell them.

Citing “antipathy toward restraints on alienation”, the Supreme Court of the United States reversed the Federal Circuit and concluded that a patentee’s decision to sell a product (and thereby obtain a reward) both domestically and abroad exhausts all of its patent rights in that item, regardless of any contractual restrictions the patentee imposes or the location of the sale.

Canada’s patent law does not have a doctrine of exhaustion, per se, and the nation may lack quite the same antipathy toward restraint on alienation. The exhaustion concept is instead animated through the concept of an implied license, whereby the purchaser of a patented article receives an implied license to use and resell the patented article.

While the purchaser can use, resell and repair its patented article without fear of infringing, it may not reconstruct or remanufacture the article. What amounts to repair versus reconstruction or remanufacture is a matter of degree and a question of fact.

Whether framed as an implied license or patent exhaustion, the ability to re-use patented items is not absolute. For example, the Supreme Court of Canada has ruled that where a farmer saved and replanted seed that he knew or ought to have known contained a patented gene, this constituted patent infringement. The Supreme Court of the United States reached the same conclusion in a 2013 case on similar facts, referring to the well-settled rule that exhaustion does not extend to the right to make new copies of the patented item.

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